BT has "significantly under-invested" in IT infrastructure subsidiary Openreach and a full split should go ahead if it fails to offer "appropriate reforms and investment assurances", according to a report by MPs.
The report (PDF) published by the Culture, Media and Sport Select Committee concluded the shortfall in investment could potentially be hundreds of millions of pounds a year.
It follows a decision by regulator Ofcom to stop short of recommending a full separation of Openreach from BT earlier this year.
This month Ofcom will flesh out its plans to push through enhanced functional separation of Openreach after identifying major failings with BT in its once-in-a-decade Digital Communications Review.
However, it has not ruled out the full-split "nuclear" option.
Reiterating findings raised by Ofcom, the report said BT has exploited its position to make strategic decisions that “favour the Group’s priorities and interests” — and is likely to have sacrificed shareholder value and customer benefit as a result.
Capital investment in Openreach has been broadly flat since 2009 until this year, and quality of service remains poor, it said.
"It arises because BT appears to be deliberately investing in higher-risk, higher-return assets such as media properties, and not investing in profitable lower risk infrastructure and services through Openreach," said the report.
It said there is "compelling evidence" that BT Group is exploiting the position of vertical integration to make "strategic decisions that favour the Group’s priorities and interests, at the expense of its access infrastructure business".
Consequently there is a serious public concern that the UK is not adequately investing in critical telecoms infrastructure and turning the UK into a" laggard by international standards in providing fibre connectivity."
It said there is good reason to suggest that a more independent Openreach might increase infrastructure investment.
"We believe Ofcom has been right not to rule out full separation; that option should be kept firmly on the table.
"Should BT fail to offer the reforms and investment assurances necessary to satisfy Ofcom’s and our own concerns, then the regulator will need to set in train the steps to enforce full separation of the Openreach business."
Over the last 10 years, BT has invested £10.5bn in its digital infrastructure, committing over £3bn in its superfast broadband network development. The committee said the choice facing Ofcom is between satisfying the needs of consumers now by maintaining lower prices, or the needs of consumers of the future: by encouraging investment in fibre networks and allowing a pricing freedom to incentivise alternative providers to invest.
According to BT’s annual reports, Openreach is the most profitable business in BT Group. In 2015/16, Openreach revenue was equivalent to 27 per cent of total BT Group revenue.
Earnings before interest, tax, depreciation and amortization, were £2.664bn.
Chief exec of BT Gavin Patterson said in his testimony that he did not accept that BT made “excess profits”, contrary to Ofcom’s findings. ®
BT's spokesperson told us: “We are disappointed to be criticised for having invested more than £1bn a year in infrastructure when the UK was emerging from recession and rival companies invested little. As the report acknowledges BT’s investment has made the UK a broadband leader among the major economies in Europe."
He added that Openreach had committed to invest a further £6bn over the next three years. He said: “We are in discussions with Ofcom about increasing the autonomy of Openreach and are hopeful that a settlement is possible that will meet the concerns of the committee. Separating Openreach from BT would lead to less investment, not more, and would fatally undermine the aims of the committee." ®